Article (Scientific journals)
Capital income taxation when inherited wealth is not observable
Cremer, Helmuth; Pestieau, Pierre; Rochet, Jean-Charles
2003In Journal of Public Economics, 87 (11), p. 2475-2490
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Keywords :
capital income taxation; inherited wealth altruism
Abstract :
[en] This paper extends the Atkinson-Stiglitz model of direct and indirect taxation to a dynamic setting with two unobservable characteristics: productive ability and inherited wealth. Bequests are motivated by the 'joy of giving'. A child's inheritance is a random variable with a probability distribution that depends on his parent's investment in a 'bequest technology'. Public borrowing is assumed and implies the modified golden rule. We study the optimal tax policy when two instruments are available: a non-linear (wage) income tax and a proportional tax on capital income. We show that the second instrument ought, in general, to be used but that the tax rate is not necessarily positive. However, a positive tax rate is more likely when there is a positive correlation between inherited wealth and innate ability. (C) 2002 Elsevier B.V. All rights reserved.
Disciplines :
Economic systems & public economics
Author, co-author :
Cremer, Helmuth
Pestieau, Pierre  ;  Université de Liège - ULiège > HEC - École de gestion de l'ULiège > Economie publique
Rochet, Jean-Charles
Language :
English
Title :
Capital income taxation when inherited wealth is not observable
Publication date :
October 2003
Journal title :
Journal of Public Economics
ISSN :
0047-2727
Publisher :
Elsevier Science Sa, Lausanne, Switzerland
Volume :
87
Issue :
11
Pages :
2475-2490
Peer reviewed :
Peer Reviewed verified by ORBi
Available on ORBi :
since 07 April 2013

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